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Response to Senate questions

The Honorable Tony Stamas, Chair
Senate Appropriations Subcommittee on Higher Education
March 3, 2008

Dear Senator Stamas and Subcommittee Members,

Thank you for this opportunity to share some insight on Northern Michigan University. What follows are the responses to your five questions. If you need further information on any particular point, please do not hesitate to contact me.

Question 1: Do you agree with the Governor's proposed formula allocations? Is there a different fund distribution methodology that you would propose?

The overall increase for higher education of three percent is very positive after several years of decreases or less than inflationary increases in the higher education appropriation.

The Governor’s proposed formula helps provide a minimum hedge against inflationary increases impacting higher education and allocates funds for desired results, and this is a good start toward healthy public policy. However, we do not believe applying one formula to all institutions is in the best long-term interests of the State of Michigan. The goal should be to provide funding that will create a diversified economy and meet the needs of the different regions of the state, which vary immensely. The following are aspects of the formula that we believe should be studied in greater depth:

Areas of Study
In an effort to diversify to a knowledge-based economy robust throughout all sectors of Michigan, focusing too much on certain degrees (i.e. STEM), commercialization and research may have a damaging effect on the future economy.

The Michigan Department of Labor and Economic Growth Report projected areas of job growth through 2014 will be in education and health services, professional and business services, leisure and hospitality, and retail trade. The report points to the fact that the economy needs a diversified educational base of students and more of them, rather than focusing on specific areas (i.e. “industrial planning by the State”). This was the point of the Cherry Report.

Degree Completion
Degree completion is a measure of success that should be considered in rewarding universities for their performance. The difficulty with degree completion as an outcomes measure is coming up with a fair way to calculate a rate that truly reflects what the university is accomplishing.

If a university provides students greater access to higher education by allowing students with lower ACT scores and high school grade point averages admission, then that institution will likely have a lower degree completion rate. Should those institutions receive a lower appropriation because they are providing greater access to students? In addition, there are other mission-related factors that should also be taken into consideration in developing a fair measurement of degree completion success.

Operating Costs
Other factors that should be considered in any formula include economies of scale, climate, state mandates that differ from institution to institution, and rural versus urban factors.

Northern continues to recommend a system of 15 formulae, one for each institution, acknowledging rural-based, urban-based and mission-based differences.  A formulaic approach that focuses on increasing the number of students attending and graduating, one that encourages a diverse range of graduates for a diverse economy, would be more beneficial to the long-term interests of Michigan.

The goal should be to provide funding that will create and sustain a diversified economy and meet the needs of the different regions of the state. Northern would like to participate in any discussions to develop a funding mechanism.

Question 2:  Most of the 15 public universities raised tuition rates last year and many schools used the "expected non-funding of the delayed payment" as justification for at least a portion of their tuition hikes.  As you are aware, the State honored its commitment to fully restore the delayed payment.  Given these facts, please respond to the following questions:

1. By what dollar amount and percentage did you raise resident undergraduate tuition and required fees for academic year 2007-08?
   Northern raised its resident undergraduate tuition and fees by $568 or 9.25 percent. With the increase Northern still maintains the second-lowest tuition and fees of the Michigan public 15 universities and is $537 more affordable than the next lowest university. Included in NMU’s tuition and fees are a notebook computer and a comprehensive technology package for all full-time students.
   
   
2. Was the delayed payment used by your university as justification for at least a portion of the increase?
   No.  Northern’s increase was based on overall total budget requirements. The tuition and fees increase was driven by the need to recover from the mid-year base reduction of 1.7 percent, projected increases in state mandates such as MPSERS costs and the minimum wage, as well as inflationary adjustments for operations and staffing. Northern did implement reductions, savings and reallocations of $1.3 million.
   
   
3. Given that the delayed payment was fully restored, has your university repaid its students any of the increase?
   Our budget and corresponding tuition and fees increase were based on the assumption that we would be receiving the delayed payment from the State of Michigan. If we had not received the increase, we would have had to consider a mid-year tuition and fees increase.
   
   
4. If repayment was made, by what amount and percentage?  If no repayment was made, please explain why.
   Not applicable, see “c” above.

Question 3: Are there any research tools or services that your university performs that the Legislature may not be aware of, but that you would like to offer as a possible resource?

Product Development

• Eugene Wickeheiser, chemistry professor, has collaborated with a bio-diesel company in the Upper Peninsula while departmental colleague Suzanne Williams has collaborated with a U.P. paper company. Dr. Williams is also actively involved in the development of a solid fuel plant for NMU. The latter could have important application for U.P. and Michigan communities. 
• Adam Prus, psychology professor, is collaborating with drug companies on developing novel applications for proprietary chemicals involving mental health, including bipolar disorder and schizophrenia.  
• Jill Leonard, biology professor, has active partnerships with fisheries in the development of sport fishing. 
• A chaise lounge prototype by Peter Pless, art and design professor, was featured in the "Fabulous 50" exhibit at the 2008 International Furnishing Show in Cologne, Germany. The event showcases the work of established design stars and creative newcomers whose work represent the "interiors of tomorrow". Pless was one of two Americans selected for the exhibit.

Commercialization
Though difficult to quantify, many NMU graduates have started and continue to sustain businesses across the Upper Peninsula and throughout the state. These businesses provide employment for Michigan residents, economic development, products and services for their communities, as well as generate tax dollars.

Service
The NMU Center for Economics Education and Entrepreneurship educates K-12 educators, students and parents about the economic way of thinking. The center provides a variety of services, programs and resources including K-12 educator training programs, professional development workshops, graduate courses, outcomes assessment, standards-based educational materials and peer-reviewed products that contribute to advancing economic literacy across the U.P. and the state. Northern also provides area K-12 with network support and technology services.

Question 4: What is the current size of your university's endowment fund?  Can you describe the major categories of your endowment and what restrictions there may be for expenditures from your endowment revenue?

Northern’s overall endowments, including our foundation, total approximately $35.6 million. The endowment consists of restricted and unrestricted assets. The restricted assets are strictly controlled by donor wishes with contractual agreements. These expenditures are primarily used for scholarships and faculty research. Northern currently has a five percent spending policy on our endowments, which protects the endowment against inflation while spending earnings of the endowment on a perpetual basis. The five percent level is above the 4.8 percent current national level for endowments at public universities with endowment funds between $25 and $50 million.

Endowments are critical to Northern for trans-generational funding of scholarships and research while also a consideration in the university’s bond rating.

The NMU Board of Trustees and administrators take seriously their fiduciary responsibility to be good stewards of Northern’s endowments. They know intimately the academic, research, capital, faculty and student needs of the institution and our community, and they are best able to make endowment spending decisions for today, tomorrow and beyond. 

Question 5: Apart from the appropriations process, what are five things the Legislature could do to help universities particularly in the area of commercialization of research and technology?

• Resolve the MPSERS problem for the seven institutions involved in the program. This state-mandated program is an annual multi-million bill to these schools that is beyond their control to lower or contain, and puts additional pressure on these seven institutions when being asked by the state to keep tuition and fees as low as possible.
• Northern is located in a part of the state with the largest heating and climate expenses. Per Michigan’s focus to explore use of alternative energies, NMU’s proposed co-generation alternative fuel plant will assist in controlling costs and implementing the use of renewable energy and other non-fossil fuel sources, as well as creating upwards of 120 new jobs in the wood industry. It will also serve as a next-generation energy research center.
• Provide transition funds for equipment and facilities to enhance current two-year programs to better serve a knowledge-based state economy and the needs of the region. The less-than-baccalaureate programs often provide in-demand jobs with good compensation. However, they are also programs that require frequent equipment upgrades to keep up with the ever-changing industries.
• Assist universities in expanding technology to research and implement next generation wireless technologies. In discussions with CEO’s in the Upper Peninsula, a major issue was access to broadband technology in rural areas. Providing Northern with assistance to broaden its wireless network off campus with next-generation wireless technologies will enhance the educational reach and access for our students, assist the community, and help meet the needs of business and industry in the region.  NMU’s laptop and wireless culture is recognized by industry leaders who look to us to help the region grow its technology capabilities.
• The Legislature can recognize and reward programs that create new jobs or put people to work quickly.  For instance, NMU’s very successful line technician program where 100 percent of the graduates are hired by energy companies to service electrical line transmissions and our aircraft maintenance program where most graduates are hired by partnering AMR (American Airlines).

Northern appreciates and applauds the leadership and insightfulness of the members of the Senate Higher Education Subcommittee and its Chair, Senator Stamas. The attention paid to Michigan’s future and the role Michigan’s 15 public universities play in that future is timely and critically important.  Thank you for your efforts.  If questions remain, please do not hesitate in contacting us. 

Sincerely,
Dr. Les Wong
NMU President